Gold traders are getting more bullish after billionaire hedge-fund manager John Paulson told investors it’s time to buy the metal as protection against inflation caused by government spending.

“By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold,” New-York based Paulson said in a letter to investors obtained by Bloomberg. Armel Leslie, a spokesman for Paulson, declined to comment.

The 56-year-old manager’s SPDR Gold Trust holdings fell 15 percent in the fourth quarter as his $23 billion hedge fund company had its worst-ever year. His Advantage Plus Fund lost 51 percent in 2011, and the firm said in a third-quarter letter that financial services companies were the “primary drag.” Paulson became a billionaire in 2007 by betting against the U.S. subprime mortgage market. Gold rose 10 percent last year in New York trading, an 11th consecutive annual gain.

And so the Paulson overhang is back. Couldn't Paulson just go ahead and buy Bank of America or some other worthless biohazard again?All that remains is for Roubini to say he prefers gold over spam (and always has, he was merely "misunderstood") and the crash will be imminent.

Or perhaps we will learn following the next $1000 up move in gold that Gartman will have been long gold in Vietnamese Dong.

It just dawned on me how this will play out and, as weird as the world has been getting, it makes perfect sense. Paulson, now bullish on gold, will be simultaneously proven correct and have his biggest loss yet.

How will this happen? While his call on gold will be correct, his investment will be in GLD. He's not buying metal, he's buying promises. His assumption that the system will continue to function normally has blinded him to the actual underlying reason that gold is a good investment: it is real.

The value of GLD depends upon the integrity of a chain of promises, and the breaking of any of these promises puts the value of GLD at risk. Gold, on the other hand, doesn't depend upon the promises of anyone, nor does it depend upon the integrity of anyone other than an assayer. In fact, being long physical gold is like shorting the honesty and integrity of Wall Street, the Federal Reserve, the City of London, and Vichy DC.

Paulson will lose his ass when the prices of gold and GLD decouple. Gold will skyrocket, and Paulson will be stuck holding unredeemable paper promises backed by vaporized gold.

for the time being I expect that if gold makes big swings up or down then options on GLD will still return big. IN particular I'd say a GLD call more than 100 days out or a GLD strangle 60 to 90 days out ought to do OK. What harm can it do to put in 1 to 3 contracts each in that position... just to see how it turns out.

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Does that mean that everything I have been reading here was wrong and the only reason why I should buy gold was that Paulson was selling his? I thought that gold was good for the exact reason explained by Paulson today.

This is correct. I remember when Paulson started loading up on gold because it was the catalyst that got me into gold. It was when gold was around $700/ounce and all of a sudden it came out that paulson had built a $5 billion position in gold. Everyone else reading here, including Tyler Durden, clearly have a very short term memory. Paulson's biggest position has been gold for at least 3 years now.

He had to sell because He had bet the farm on banks and had to cover the loses with the winnings from gold. He is running a hedge fund after all. He can start multi-billion dollar position which will also call more money. For me, it is just another log in the fire. PAGE another log. Bernake another log.

At this point, It feels like all the big boys can do is try to control the ascend of PM. I am surprised with all the smacking they did this week plus USD "strength" that PM didn't get slammed into nothing. There must be some strong and patient hands at this point.

The next time (if it happens) that Silver gets below 30 (there could be a monkey-hammer around options expiry, it might be 1 week from today) I am going all-in on silver. My last 10 pounds was lost in one of those increasingly common boating accidents.

Something really funny ... a quote by the very pompous Dennis Gartman.

He had recently been touting how "we are bullish Gold and thus shall buy Gold in Euro's" ... who in the world talks like this, much less thinks it's impressive "doing so"?...

Not a fan of Dennis Gartman, as he has had a mediocre track record at the very best, who for years has talked down to his despised Gold bugs and belittled anyone and everyone who spoke of Gold as money.

According to him, Gold was always just another commodity though he has softened his insults recently as ...obvious...has become even obvious to him. Mr. Gartman has represented the epitome of all those who have talked down to and belittled hard money advocates who just happened to be right all along.

They were right for ALL the right reasons! The fact that CNBC has him on as a regular should tell you all you need to know.

His statement "we shall buy Gold in Euro's" is asinine. What he is trying to say, he thinks the Euro will underperform the Dollar so he wants the extra kicker that the Euro will drop versus Gold faster than with Dollars. His statement is asinine because in order to "buy Gold in Euro's" you must do it with some sort of contract somewhere, somehow. He could of course short Euro's versus Dollars and then go out and buy real physical Gold. This is not what he is talking about, he is speculating by purchasing contracts for Gold based in Euro's. When you buy Gold you give a currency for payment whether it be Dollars, Euro's Yen, Pounds or Rubles. Whenever you consumate the trade and give payment, you are no longer in posession of your fiat currency, you have shorted whatever currency you paid in.

The most important thing is what he misses, OWNING ounces!

Going one step further, MF Global should have taught Mr. Gartman one thing if nothing else, there is risk in holding a contract.

Your Gold may not exist that is represented, your broker can go bankrupt, the exchange can go bankrupt amongst these lessons ... just ask Gerald Celente.

Dennis Gartman is NOT buying Gold in Euro's. Buying Gold is giving a fiat currency or something of value, in exchange for the real metal.

You either own the Gold or you don't.

When the current fraudulent fiat episode ends, it won't matter whether you paid for your ounces in Dollars, Euros or livestock. What will matter is how many ounces you have, period.

He is a speculator. He is trading in and out to make a profit. This profit will be held in what? More fiat currency of course!

The profit will be held in a fiat account until he is ready to strike again. He has given some lip service to "everyone should have 3-5% of their portfolio in Gold" ... GLD anyone! He hasn't made the leap to understanding that should he not have leap at the right time, he is out and it may be at the wrong time. Not to mention having to rely on his precious contracts to perform during a period of high stress and default.

It is this mindset of trading that will eventually boost real physical Gold and Silver out of the statosphere. If 100 claims on Gold exist for every one real ounce of Gold, there will be a lot of naked longs out there.

For every naked short there is a naked long even if the long doesn't know it.

It doesn't matter that the long is in the dark and has no idea he really isn't long...until it does!

Once it does matter, will this naked long want to replace his naked position with something real. Maybe they will not only want to replace it, but replace it with ALL the nearly worthless fiat that they have left. This, while anyone who is really long is having thoughts of NEVER parting with one real ounce because the market place of nakedness is demonstrating just how rare and valuable their one ounce really is.

It is this one simple concept that the famous mouthpieces for the fiat establishment just do not understand, Gold IS money. It always ...for 5,000 years... has been and always will be.

So the next time you hear some important sounding CNBC talking muppet yell fire telling you that "cash is king" and time to "move to cash", please understand that they don't understand shit from Shinola.

As much money as he manages, if he buys bullion, and mining stocks instead of ETFs, that are managed to hold prices down, his call will be a self fufilling prophesy. It might even break the ETFs by proving that there isn't enough bullion available for them to grow any more.

The Black gold story does not pass my likelihood test. For there to be even hundreds of hidden tons one must believe that some folks could mine in secret what big companies with tons of high explosives and huge bulldozers have been unable to do in the open with lots of encouragement.

For starters, he's been long gold for a LONG time Tyler(s) and even with the 51% shit kickin' he took last year, his annualized returns are still at a minimum over double that of anyone on this site, net of management fees and incentive fees.

If you have over 100,000 shares of GLD you are big enough to have an Authorized Participant do a redemption for you. This make GLD nearly the same as physical for those with over $17mil in the ETF. For the rest of us it is just betting on the price of gold. GLD can also be a way of protecting against huge drops (by buying Puts) should all confidence flee the market. This could happen when folks realize that unless you have the gold in your hand it might not be yours....think MFGlobal...think a failure at COMEX...

It's like that giant headline saying GEORGE SOROS SELLS ALL OF HIS GOLD.But no one in the comments neither the article itself asked or specified WHAT TYPE OF GOLD IT IS.Is it ETF's backed by air or physical?I think we all know the answer...